While you were sleeping: September taper back in focus

The latest data on the US trade deficit reflects the gathering strength of the world's largest economy.

Wall Street fell a second day after two other US Federal Reserve officials suggested the central bank could begin easing its bond-buying programme next month.

In late afternoon trading in New York, the Dow Jones Industrial Average slid 0.62 percent, the Standard & Poor's 500 Index fell 0.59 percent and the Nasdaq Composite Index dropped 0.78 percent. Shares of International Business Machines, down 2.5 percent, Hewlett-Packard, down 2.1 percent, and United Technologies, down 1.4 percent, led the decline in the Dow.

A day after Dallas Fed president Richard Fisher suggested the central bank should begin easing its bond-buying programme in September "unless we see some disturbing data", both Chicago Fed president Charles Evans and Atlanta Fed president Dennis Lockhart separately said the bank might start tapering as early as next month.

Mr Evans, who has been among the strongest proponents of record monetary accommodation, said today at a meeting with reporters in Chicago that he "would clearly not rule" out a decision to begin dialing back the purchases in September, according to Bloomberg News.

Mr Lockhart told Market News International that while a move to ease back on monetary stimulus could come in September, the move could come at any time before the end of the year, the Wall Street Journal reported.

Fed officials "are all hedging themselves, which is why the market continues to just be a little bit confused and why it is going to churn", Ken Polcari, director of the NYSE floor division at O'Neil Securities in New York, told Reuters. "There is really no reason at the moment for the market to go higher because it is still too unclear."

Cleveland Fed president Sandra Pianalto is scheduled to speak on Wednesday (US time).

Meanwhile, the latest data on the US trade deficit reflected the gathering strength of the world's largest economy. The trade deficit dropped 22.4 percent to $US34.2 billion in June, narrowing more than expected to the smallest gap since October 2009, according to Commerce Department data as exports surged to a record high and imports fell.

"Today's surprise implies a significant upward revision to second-quarter GDP," Laura Rosner, an economist at BNP Paribas in New York, told Reuters.

Shares of IBM declined after Credit Suisse downgraded the stock to "under-perform", while Bloomberg reported that the company also asked some of its employees to take extra time off at a third of their normal pay to save costs.

In Europe, the Stoxx 600 Index gave up 0.4 percent from the previous close. The UK's FTSE 100 fell 0.2 percent, France's CAC 40 shed 0.4 percent and Germany's DAX sank 1.2 percent.

Germany's adjusted factory orders showed better-than-expected gains in June, climbing 3.8 percent, after a 0.5 percent decline in May.